Rental markets for equipment are receiving increased governmental attention as a means to improve access to technology to small-scale producers in developing countries. These markets are growing particularly in agriculture, where the majority of production in low-income countries occurs at small scales. Yet, their efficiency and distributional implications are not well understood. We build a novel framework that characterizes allocations in terms of the size and geographical distribution of capital demand, through endogenous firm queueing into equipment providers of different service dispatch systems. The constrained efficient allocation prioritizes large-scale demand because the cost of moving equipment for service provision dilutes with scale; as well as small-scale demand in dense locations, because they maximize machine-capacity utilization. Exploiting unique transaction level data from a rental market in India, we calibrate our model to reproduce salient features of these markets: rental rate dispersion, unused service capacity and delays in service provision. We find that the welfare gains from the rental market as well as small-scale producers’ access to capital depend on the joint spatial and size distribution of demand, a novel rationale for the heterogeneous impact of programs that increase equipment supply documented in the literature.
